Why are public services run by private companies?

This question comes up time and time again. The rush to privatisation started in the 1980’s and was viewed as a strongly ideological policy direction, characteristic of Thatcherite Conservatism.

At the time it seemed to me that privatisation would just lead to an increase in the cost of the services as private companies would have to make profits and pay shareholders. I was never convinced by the argument given in favour of privatisation that services would be more efficient in the private sector. We were told that publicly run services were inherently inefficient and that because the private sector was more efficient services would somehow save money and be of a better quality when run by private companies. Labour did not buy this argument but nevertheless did little to reverse the privatisations which took place, and in some cases, introduced new areas for private companies to participate, such as the introduction of Independent Treatment Centres for non-urgent operations within the NHS.

I have had treatment at Aintree Hospital over the last three months and my experience and that of many patients is that there is room for improvement in the way that some services are run. Patient care is very good but listening to staff and patients there are opportunities to do things better. The same goes for other public services. It is important to say that we can both believe in the principle of keeping the NHS public and at the same time offer constructive criticism when things can be improved.

But to use inefficiencies in the public sector as the reason for bringing in private companies is to look only at part of the story. The inefficiencies in the health service were given as the reason for the so-called reforms by the coalition. But the Tories and Lib Dems conveniently ignored the fact that the World Health Organisation ranked the NHS as the best in the world back in 2010. The question is, why go for such wholesale change when the service is already running well? It is an established fact that the American health system, with its complex maze of competing providers and private insurance, is administratively the most expensive in the world. So is the NHS and the rest of the public sector as inefficient as ministers and their friends who run private companies claim?

Before deciding whether the public sector is efficient or not it makes sense to consider what large private sector organisations are like.  I worked with a number of blue chip private sector organisations before I became an MP. I have to say that many of those organisations were neither especially dynamic nor efficient in the way they were run. In fact the culture in service sector organisations in the private sector is remarkably similar to that in the public sector. That is to say, there is a mixture of good and not so good management. There is also a mix of efficient and not such efficient use of resources.

The best organisations have chief executives and directors who inspire service delivery which is over and above standard levels. Invariably that is because the managers encourage and engage their staff. There is good leadership in both public and private sector organisations. Sadly that leadership is in short supply.

Some staff at Aintree Hospital tell me that managers never ask them for their ideas or if they think there are ways to improve the services they deliver. But this is the same in many private sector organisations. As a result, there may be less than efficient elements to the way hospitals are run but the same can also be said about the way the railways are run.

Coming back to the way that services were privatised under the Thatcher and Major governments, rail is one of the best (or worst) examples of how privatisation has not produced either the claimed savings or the claimed improvements in service. When we consider that rail fares in this country are up to 40% higher than they are in continental Europe where the trains – largely run as a public service – are cleaner and more efficient, it is clear that privately run public services cost more. And yes British Rail was not the best run public service in the world. But did rail services need to be privatised to be more efficient and have services improved much since the days of a nationalised rail network? Ask commuters whether services are better and they will say no.

It is a myth that everyone in the private sector spends money wisely and that everyone in the public sector is inefficient. If we follow the American privatised health care model, 10% of the money which is spent on patient care would go in profits.

Councils including my own in Sefton are bringing contracts back in house because hoped for efficiency gains did not materialise and in the severe financial climates faced by councils paying for profits and shareholder dividends just does not add up, not that it ever did.

Efficiency in public services requires investment in good managers and leaders who can improve the chance of getting the best out of the staff who run our services, working in co-operation with the trade unions for the public good. A combination of having the best people and giving them the support and development that they need to perform is likely to ensure better results. Services run by private companies can be run well but companies have to make profits and shareholders have to receive dividends. Money paid in profits or in dividends is not by definition available to invest in services – which is exactly the American experience in health care.

There is a case for saying that in the UK, both public and private sector organisations are so focused on managing risk that they stifle creativity, innovation and discourage staff from thinking for themselves. Unlocking the potential of people working in our public services would really drive improvement. An element of risk taking may well be the way forward and it cannot be less efficient than the profiteering which has resulted all too often from the outsourcing or privatisation of services. One thing we could do is to take on board the views and experiences of people who use the services. Most of us have experienced elements of the NHS which are excellent, but also far less responsive services as my own example in this article shows. But this is no excuse for the Tory rejection of a national, state-run service which Labour continues to strongly advocate as the best way of providing equitable health care. Of course, co-operatives, and the voluntary sector both make an important contribution to the delivery of public services. And  the public sector has always bought supplies and for that matter some services from the private sector. But we should never fall into the Tory trap of seeing every public failure as an automatic private success.

We need to reverse the cuts being made by this government. But the time has also come to act on the evidence and work out how to make the most of our public services. Those services can be run for the benefit of those who use those services not for the benefit of those best placed to make money out of those services. That can happen if we lift the shackles from the staff and who knows we might actually see more for less if we ask staff and for that matter service users how to get services right.

Bill Esterson is Labour MP for Sefton Central and a member of the Communities and Local Government Select Committee

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1. The private sector always has a place in public services
2. How private is public?
3. We need a budget for jobs and public services
4. This is not an argument between public and private sector
5. Are Labour losing women’s votes on public services?